SIPP tax relief, explained

Pension tax relief is the most generous incentive in UK personal finance, and also the most misunderstood — mostly because half of it happens automatically and the other half only happens if you ask. Here's the whole picture for SIPPs and personal pensions.

The automatic part: relief at source

Contributions to a SIPP come from your taxed income, so HMRC gives basic-rate tax back automatically. You pay in £80; your provider claims £20 from HMRC and adds it to your pot a few weeks later. In other words, whatever you pay in gets topped up by 25% — that's basic-rate relief, and it happens for everyone, including non-taxpayers on contributions up to £2,880 a year (£3,600 gross).

The part you claim: higher and additional rate relief

If you pay 40% or 45% tax, you're owed more — but it doesn't arrive by itself. You claim it through self-assessment (or by asking HMRC to adjust your tax code). Mechanically, your gross contribution extends your basic-rate band, so income that would have been taxed at 40% is taxed at 20% instead. The refund comes to you, not your pension: a higher-rate taxpayer putting £100 gross into a SIPP pays £80, then gets up to £20 back at tax time. Net cost of £100 invested: £60. Every year, higher-rate taxpayers leave this unclaimed — if that might include past-you, claims can be backdated four tax years.

The 60% zone: income between £100,000 and £125,140

In this band you lose £1 of personal allowance for every £2 of income, which makes the effective marginal tax rate 60%. Pension contributions reduce the income used for that test — so a contribution here both saves 40% tax and restores personal allowance, giving effective relief of around 60%. £1 in your pension for roughly 40p is the best deal in UK tax, and it's the main reason contributions spike among people earning just over £100k. The SIPP tax relief calculator handles the taper automatically and shows your exact effective rate.

The limits

• 100% of earnings: tax relief covers gross contributions up to your UK earnings for the year (dividends and rental income don't count as earnings).
• Annual allowance — £60,000: gross contributions across all your pensions, employer contributions included. Unused allowance from the previous three years can be carried forward if you were a scheme member.
• MPAA — £10,000: once you've flexibly withdrawn from a pension (e.g. a UFPLS — see our guide), your money-purchase allowance drops to £10,000 with no carry forward.
• Tapered annual allowance: very high earners (adjusted income over £260,000) see the £60,000 reduced, to a floor of £10,000.

Watch out: not every scheme works this way

This guide describes relief at source, used by SIPPs and personal pensions. Many workplace schemes instead use net pay (contributions leave your salary before tax — full relief, nothing to claim) or salary sacrifice (you also save National Insurance — usually the best deal of all where offered). Check which your scheme uses before assuming you have a claim to make.

Run your own numbers: the SIPP tax relief calculator shows your top-up, your claim, and your true cost per £1 invested — then the growth calculator shows what those contributions could become. When you're choosing where to hold a SIPP, see our platform comparison.

This guide is general information, not financial advice or tax advice. Figures refer to the 2026/27 tax year; Scottish income tax bands differ, which changes the relief amounts at higher rates. Full disclaimer.